The PlayStation 3’s challenges come in threes

The enemy of my enemy is my... partner developer? Sony's challenges with the …

A series of setbacks for the PlayStation 3, which was to originally launch in the spring of this year, have culminated in a tenuous launch and a slight risk for the company. The initial launch announcement was marred by complaints over Sony's pricing, but Sony's real embarrassment came when the company admitted that it was having manufacturing problems. Now Sony is looking at a potentially hot holiday 2006 shopping season, but they're armed with less goods to sell; they will only ship 2 million units by the end of the calendar year, down from 4 million promised earlier. The company also had to push its European launch back to March of 2007.

The Wall Street Journal is profiling the situation (subscription required), rehashing most of what we already know about Sony and the PlayStation 3. The report does briefly address Sony's ability to recoup its loss on the PlayStation 3; it's not a question so much of can they do it, but when will they do it? The article refrains from answering that question, but it provides plenty to talk about. As I see it, the challenges facing the PS3 are three. First, there's Sony's own pricing. Second, there's the competition. Third, there's Sony's partners.

John Yang, a Tokyo-based analyst with Standard & Poor's, told the Journal that "By reducing the price, it appears that Sony may have prolonged its recouping period of initial investments on the PS3 by a few years." Is Yang right? The price cuts in question only relate to the Japanese market, and even then, only to the low-end PS3. Sony has previously said that this low-end PS3 will constitute only 20 percent of all PS3s made, leaving the lion's share to the higher-end unit. Unless Yang expects similar price-cuts to be announced in other regions, it's difficult to see how this single price cut could add "years" to Sony's cost recuperation.

A bigger challenge will be the competition, which is how it should be. Microsoft's Xbox 360 has a year's lead on the PS3, and Microsoft is hopeful that 10 million units will have been shipped by the close of the year. Nintendo's Wii will join the fun this November 19, and the company has already promised 1 million launch units for North America (more than twice that allocated for the PS3 launch in the region). It seems as though the PS3 is destined to be outsold by Nintendo this holiday season, but Sony knows that this is a long-haul game: they didn't sell 100 million PlayStation 2s in a year's time. They have relied on the PlayStation to keep the company healthy, however. The Journal says that Sony's gaming unit "has accounted for as much as two-thirds of Sony's annual operating profit in past years."

Jack Tretton, executive VP and co-COO of Sony's U.S. games division, told the Journal that "I don't think there's a tremendous sense of urgency that we're falling behind a competitor." That sense of urgency may come if Sony cannot ship 6 million units by the close of March 2007. Sony's two big challenges are its manufacturing problems (which they currently say are tied to blue laser supply issues), and its pricing. There's also a third challenge, which I mentioned above: its partners.

Consider the comments of Michihiro Sasaki, senior VP of Square Enix. Sasaki's company has been a longtime supporter of the PlayStation, particularly with its Final Fantasy series of games. Sasaki told the Journal that "We don't want the PlayStation 3 to be the overwhelming loser, so we want to support them," he said. "But we don't want them to be the overwhelming winner either, so we can't support them too much."

Whether it's on the virtue of the appeal of the Wii or the success of the Xbox 360, game developers are understandably cautious about putting their eggs in one basket. Once all three systems are on shelves, we'll have the opportunity to consider what effect this has on gaming. Looking into our crystal ball, we've predicted that this generation of consoles will spur even more cross-platform game development, and that this will have a leveling effect on games themselves, at least in terms of visual quality and complexity. Each console will retain its own in house specialty development efforts, of course, but the virtual playing field could be leveling out. On the one hand, this could be a big problem for the powerful PS3. Or maybe, just maybe, the PS3's big sales generator at the end of the day will be its Blu-ray drive. Time will tell if Ken Kutaragi is crazy like a fox, or just plain crazy.

Ken Fisher / Ken is the founder & Editor-in-Chief of Ars Technica. A veteran of the IT industry and a scholar of antiquity, Ken studies the emergence of intellectual property regimes and their effects on culture and innovation.